27.220 International Management Lecture Presentation Overheads Scale Full scale production The Range of FDI Alternatives Pack & Assembly Warehousing Sales Office Type of None Majority owned Equal ownership Ownership Arrangement Minority Ownership Partner Stages Model of Development of International Business Outward Inward 1. Indirect/ad hoc exporting 1. Importing/sourcing 2. Active exporting and/or licensing 2. Act as licensee/franchisee 3. Equity investment in JV’s 3. Partner foreign co in JV 4. Full-scale multinational marketing and production for foreign parent 4. Manage foreign owned subsidiary Motivation for FDI 1. Seek resources 2. Seek markets 3. Seek efficiency 4. Seek strategic advantage ------------------5. Hubris “Make or Buy” Decision Organic growth? Slower but safer? Acquisition? Most acquisitions fail! - pay too much - can’t integrate the managements/ org’n culture 2000 vs 1970 Resource seeking: Differences: - 2000 puts more emphasis on local processing - More local skills and partners are available Same: - issues of availability, price, quality - infrastructure - transport, banking, community - government restrictions - capital, dividends - investment incentives 2000 vs 1970 Market seeking: Differences: - 2000 more middle class (eg. India, China) - More regional trade blocs - more alternatives for suppliers, markets, services - better infrastructure - more realistic/favourable host gov’t plicies - greater need to be close to customers suppliers knowledge Same: - issues of costs - wages, material, transport - infrastructure - transport, banking, community - government restrictions - capital, dividends, protectionism 2000 vs 1970 Efficiency seeking: Differences: - more choice and availability of skilled labour, service & supplier firms, infrastructure - more realistic/favourable host gov’t plicies - less market distorition Same: - focus on production costs - focus on freedom to trade in intermediate and final production - importance of “agglomerative” economics - availability of associated and related businessesd - investment incentives 2000 vs 1970 Strategic Asset seeking: Differences: - More geographic dispersion of knowledge based assets -more support related services (accounting, consulting, lawyers, financial firms) - more “two-way” relationships with host/foreign partners, markets, culture - more reverse flow of ideas - need to be “world class” in terms of scale, design Same: - same issues, but more highly developed. There is a larger choice, range of alternatives to managers now. Outline of the course: Background The Global Business Environment () The world of International Trade () - trade, trade blocs, STEP comparative/competitive advantage exchange rates No Equity Investment Exporting () Global sourcing () Licensing ()Investing Equity Joint ventures - minority? Equal? Majority? () International Strategy formation () Globalization and organization () The evolving multinational () The global manager () - Human relations issues in multinational management MNE - government relations () Characteristics of global leaders () Managing Global Workforce () Postscript Remind ourselves that international trade and MNE’s are not new phenomena International Trade - Phoenicians traded the length of the Mediterranean, to England and down the coasts of Africa the Roman Empire traded with China, India, tropical Africa, England and the Baltic the Arabs traded from Mozambique to the interior of the Congo to the southern Philippines to the Baltic MNE’s - The Muscovy Company The Levant Company The East India Company The Virginia Company The Company of New France The Hudson’s Bay Co. Jardine Matheson, which became the HSBC All these companies represent not only economics and trade, but also colonialism and imperialism Which raises the question: What is, or ought to be, the role of the MNE in economic development? -Still half the world is living in absolute poverty What about ecological issues - timber, fish, mining, petroleum What about exploitation of the weak? Lack of regulation and inspection, excess cost cutting eg. Bhopal use of DDT in the third world child labour? Abolish it? But it contributes as much as 1/3 of ` family income bonded labour? Close to slavery? The study of international business is not exempt from moral issues!
